Quick Skim
Slowing home sales, a tightening credit market, record-high foreclosures — how did we get to this point? Richard Bitner's book Confessions of a Subprime Lender (Wiley, 2008) gives a close-up look at how the worst credit crisis in modern history came to be. Bitner, who founded a subprime mortgage company in 2000, left the business in 2006 after foreclosing on a subprime borrower that never should have been approved for a loan in the first place. While being careful not to blame any single source, Bitner gives an interesting view on what went wrong in the subprime mortgage market and how to fix it.

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From the Book: 5 Reasons the Subprime Market Crumbled

In 2000, as housing prices grew out of reach for buyers, more creative financing crept in and subprime lending became big business. Wall Street wanted its hands on more of these loans, and the hot housing market spawned a wave of new subprime companies. By 2004, 75 percent of borrowers were buying a home without using a down payment or proving income.

But by 2006 the subprime market started falling apart; Borrowers were defaulting on loans and subprime companies were going out of business. Bitner says these are some factors that caused the subprime market to crumble:

1. Greed. Mortgage brokers made more money if they sold loans with higher fees and interest rates. So borrowers would often be steered toward riskier products, even if a more traditional (and less risky) loan were available. "My income was directly proportional to the revenue I generated, and subprime was three to five times more profitable than any other type of loan we securitized," Bitner says. "I saw no logical reason to sell something that made less money and carried no competitive advantage."

2. Rampant fraud. Bitner estimates that more than 70 percent of all brokered loan applications submitted to his company were in some way deceptive, which meant everything had to be double-checked and verified. "The practice of massaging loans, making them appear different

Common cases of fraud included altering income documentation, giving a borrower an adjustable rate mortgage without explaining how it works, or disclosing lower rates and fees to a borrower but then increasing the figures right before closing.

3. No standards. Everyone wanted to cash in on the subprime business, even if they didn't know how the business worked. "With few rules and minimal consumer protections, abusive behavior flourished," Bitner writes. The number of mortgage broker companies increased by 50 percent between 2001 and 2006, peaking at 53,000 in 2006. Meanwhile, the number of new loan originators working for mortgage brokers grew by 100,000.

Yet no national standard existed for licensing mortgage brokers and loan originators. Bitner says the industry needs to raise its standards and develop a system for accreditation. "The recent debacle has given brokers a reputation similar to used car salesmen," Bitner writes. "Although the bankers and brokers associations don't have a history of working together on issues, a collaborative effort to accredit loan originators would be a key step to rebuilding credibility for the industry."

4. Securitization of mortgages. Mortgage securitization fragmented the industry, Bitner says. Previously, banks would provide the money to fund a mortgage, but with securitization, the funding got divided into several components.

Here's how it works: Brokers originate the loan, a mortgage lender funded it, and a lender then sold it to another financial institution or used an investment bank to package it into a mortgage-backed security. Investors then bought them for their portfolio. "The problem in today's housing market exists because the investment banks packaged high-risk loans into securities and the rating agencies assessed them as investment quality," Bitner writes. "If the investors who purchased the securities understood what they were buying, the outcome would likely have been different."

5. Ultra-relaxed underwriting standards. As the subprime market took off, a pricing war among subprime lenders emerged. In order for lenders to keep their revenues up, they needed to fund more borrowers, leading to less restrictive underwriting. "It's easy to lose sight of what constitutes a good credit risk when you spend all day looking at marginal deals," Bitner writes.

Indeed, riskier products emerged, such as loans that required no down payment, proof of income, or even a history of paying rent. One loan product even allowed borrowers with credit scores of 580 and a 90-day-late payment in their housing history to qualify for 100 percent financing.

Sneak Peek

"During the first six months in business, I felt no more qualified to pilot the Space Shuttle than to be the president of a subprime lending company. Seven years in mortgage banking provided a solid foundation, but coming from the ranks of companies like GE Capital, my schooling was largely driven by a conservative mind-set. Lending money to borrowers with bad credit was never a part of the curriculum. When I first learned about subprime mortgages, the high-risk nature of the business made me think it was best suited for those who suffered from low morals or head trauma. Lending money to people with bad credit just seemed like a terrible idea. It wasn't until I got a taste for this business that my feelings started to change."

About the Author

Richard Bitner has more than 14 years in the mortgage industry. In 2000, he founded Kellner Mortgage Investments, a subprime mortgage company with 65 employees and $225 million in annual loan volume. Bitner got a distaste for the business in 2006, leaving his business about a year before Kellner closed and the subprime market started to crumble. He is now the managing director of Housing Wire. Visit his blog: www.lendingsanity.com

Listen to a podcast with author Richard Bitner >

1. Yes!: 50 Scientifically Proven Ways to Be Persuasive, By Noah J. Goldstein, Steve J. Martin, and Robert B. Cialdini

2. The Tipping Point: How Little Things Can Make a Big Difference, By Malcolm Gladwell

3. Influence: The Psychology of Persuasion, By Robert B. Cialdini

4. Predictably Irrational: The Hidden Forces That Shape Our Decisions, By Dan Ariely

5. Nudge: Improving Decisions About Health, Wealth, and Happiness, By Richard H. Thaler and Cass R. Sunstein

6. Sway: The Irresistible Pull of Irrational Behavior, By Ori Brafman and Rom Brafman

7. The New Rules of Marketing and PR: How to Use News Releases, Blogs, Podcasting, Viral Marketing and Online Media to Reach Buyers Directly, By David Meerman Scott

8. The Mary Kay Way: Timeless Principles from America's Greatest Woman Entrepreneur, By Mary Kay Ash

9. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, By W. Chan Kim and Renée Mauborgne

10. Principles of Marketing, 12th Edition, By Philip Kotler and Gary Armstrong

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From the Book: 5 Ways to Get More Publicity

So what do you want to publicize – yourself, your company, an aspect of your real estate expertise? Also, who’s your target audience? Knowing the answers to such questions will help you to pinpoint appropriate newspapers, magazines, or other media outlets to pitch stories or offer up your expertise. A list of such considerations appears in Segal's book to help you start to form your publicity plan.

Once you have a well-mapped out plan of your goals, you're ready to head on the publicity trail.

1. Have a news hook. When approaching the media with a story idea, make sure it's newsworthy for more than just yourself. In his book, Segal identifies some of the most common story angles where real estate professionals are often successful in landing in news stories.

For example, stories where you can talk about real estate trends and developments, advocate for affordable housing, raise money for a good cause, market listings in a unique way, showcase unusual properties, or comment on a recent real estate transactions. Also, realize that you may face skepticism from the media so arm yourself with a solid real estate background, credentials, and facts to back up your key points when talking to the press. (WATCH: an online video of media tips to put you at ease when talking to reporters.)

2. Give speeches. Speaking in public offers golden opportunities to make people aware of your real estate expertise, accomplishments, and activities, Segal writes. Talk at a conference or seminar and, beforehand, make the most of your presentation by issuing news releases, e-mail and newsletter announcements, and conduct press interviews to highlight your talk ahead of time. (LISTEN: REALTOR® magazine's podcast on how to become a better speaker.)

3. Get publicity in cyberspace. You can increase your exposure using the Web, too. Comment on others’ blogs, create podcasts, and have a Web site that you promote everywhere — these all can be ways to showcase your expertise and ramp up your exposure. On your Web site homepage, set up a “press room” or “news” section. In that section, have news releases,

4. Offer up your opinions. Opinion pieces and byline articles in newspapers and magazines also can be a publicity generator and allow you to express your viewpoints and share your experiences on an issue. By submitting letters to the editor to publications to comment — in your own words — on current events, a recent article, or to correct mistakes in the media, you’ll reinforce your credibility and promote your name and expertise, Segal says. When writing these letters, respond quickly to the story issue or event that you're writing on so they don't become dated and keep them short and focused, avoiding lengthy tangents, and base it on your experience.

5. Hire a pro. Too crunched for time to maintain the publicity machine? Then have a professional do all of the legwork for you so you can just reap the benefits. Work with a PR agency or hire consultants who already know best strategies for breaking through the clutter to get to the media. Prices range from less than $100 per hour to more than $10,000 per month. Segal suggests finding a professional from such sources as Public Relations Society of America, International Association of Business Communicators, or your local chambers of commerce.

Sneak Peek

“News organizations are the most important stepping stones to publicity in our society. That’s because television stations, radio stations, newsletters, Web sites, blogs, podcasts, magazines, and newspapers are among the most effective ways for individuals, companies, and organizations to communicate with the rest of society. … Many news outlets have a tremendous vacuum to fill every day, week, or month in finding and providing enough information to fill hundreds of thousands of hours of airtime and millions of pages of print every year with news and information.

The challenge of these news organizations have in finding and providing news to their audiences also represents an important opportunity for you – if you are able to present your real estate expertise, activities, and opinions, or accomplishments as news. If you can, then you may have an excellent chance to convince news outlets to do a story about you or your real estate company.”

About the Author

Edward Segal is CEO and communications director of the Marin Association of REALTORS® in California. A popular PR consultant and media trainer to nationwide companies, Segal is a marketing strategies columnist for The Wall Street Journal's StartupJournal.com. He also has served as a press secretary to members of Congress and an aide to presidential and congressional candidates. Visit his book's Web site: www.profitbypublicity.com

Please keep your questions general so that others can benefit from the responses too.

Once popular how-to books about reselling hot properties for quick cash are being replaced by how-to books on avoiding foreclosure and rebounding from real estate investing mistakes.

Publishers are adding new titles and updating backlist titles to reflect the changing times. So what else can

Diane Steele, a vice president at Wiley, says they are fast-tracking a new edition of Property Management for Dummies, set to be released in August. “There will be new landlords because when people get over the fear curve and recognize that properties are affordable, we think that more and more of them will be going into real estate investing,” Steele told The New York Times.

Also, books on foreclosure likely will remain popular sellers in the coming months. For example, Adams Media rushed to publishThe 250 Questions Everyone Should Ask About Buying Foreclosures this month, after its modest success with The 250 Questions Everyone Should Ask to Avoid Foreclosure.

What sort of real estate titles would most interest you now?

When business slows, there may not be as much money to sink into your marketing. How can real estate professionals figure out what can give them the best return for their marketing dollar? Can you still make your business “remarkable” even on a tight budget?

GODIN: Marketing is not about money, it's about insight and promises and stories and relationships and connections. Use the downtime you have now to put sweat equity into your marketing, by doing something worth talking about.

In real estate, you’re selling a service not a product, per se. So how can you differentiate yourself in real estate?

GODIN:The first step is in realizing it IS a service. Yet most REALTORS® do nothing at all to differentiate. It's about the picture of the house and the boring business card and the empty claims and promises. BE different, really different, and people will treat you that way.

Technology continues to evolve in offering new ways to reach potential customers. What do you see as some of the best ways to use technology for marketing and prospecting?

GODIN: I don't think technology (Zillow, etc.) is the enemy of the outstanding REALTOR®. Instead, I think smart REALTORS® will realize that they can build a long term relationship asset using technology, turning themselves into the one and only.

Check out more of Godin's marketing tips in this Q&A from REALTOR® magazine.

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From the Book: 5 Ways to Be Remarkable

Do you feel invisible and anonymous when prospecting? Then start searching for a “Purple Cow” you can bring to your business. Unlike boring brown cows, Purple Cows are products or services that have built-in remarkable elements that literally sell themselves. Here are some ideas from the book for making your company stand out from the crowd:

1. Sniff out the sneezers. Godin uses the term “sneezers” to describe people who are so excited about your services that they infect all those around them with information about you and what you have to offer. Spend all your energies pleasing this group and figure out ways that you can grow and reward this group. “Ignore the rest,” Godin writes. “Your ads (and your products!) shouldn’t cater to the masses.” Do you have the e-mail addresses of the 20 percent of your customer base who loves what you do? If not, get them. And then concentrate on making this 20 percent happy.

2. Don’t play it safe. Trying to play it safe is riskier than innovation, Godin writes. Playing follow-the-leader in your industry makes you disappear into the crowd. Innovative companies, by definition, try tactics that competitors don’t use. For example, Herman Miller took a risk when the company introduced the $750 (gasp!) Aeron chair into the office furniture industry in 1994. “They launched a chair that looked different, worked differently, and cost a bunch,” Godin writes. “It was a Purple Cow. Everyone who saw it wanted to sit in it, and everyone who sat in it wanted to talk about it.” What tactics does your company use that follow the leader? You’ll never catch up with your competitors by being the same, so make a list of ways you can succeed by being

3. Make your business cards stand out. “If you’re in an intangible business, your business card is a big part of what you sell,” Godin writes. So don’t let your business card become a brown cow — boring and indistinguishable from one another. Godin cites the example of an ice cream store owner who placed a stack of large business cards on the counter that said, “If you have any comments at all about the store, please call me at home.” It listed the owner’s home telephone number. People who visited the store noticed and talked about it. Godin recommends creating a second business card for you to distribute that will make people talk.

4. Be a copy cat, kind of. Examine what works and what doesn’t by making a list of all the remarkable companies in your industry. Who made them? How did they happen? “Model the behavior (not mimic the product) and you’ll be more than halfway to making your own,” Godin writes. “Immerse yourself in fan magazines, trade shows, and design reviews.” Also, identify a competitor in your market. What are they known for? Once you identify their special trait, set out to outdo them in it.

5. Come to the rescue. Be a problem-solverfor your customers. Identify a problem that you can solve and then promote the solution where those most likely to pass it along will be paying attention, Godin suggests. He points to Altoids’ successful campaign, which was one of the most profitable candy introductions in history. Altoids targeted young adults who were looking for something to pop in their mouths at work and while on-the-go. The company advertised in urban centers with high-end imagery and slogans, and packaged the candy in a small tin, perfect for sharing and “sneezing” the product to others, Godin writes.

Sneak Peek

“Remarkable marking is the art of building things worth noticing right into your product or service. Not slapping on marketing as a last-minute add-on, but understanding that if your offering itself isn’t remarkable, it’s invisible. …Remarkable isn’t always about changing the biggest machine in your factory. It can be the way you answer the phone, launch a new brand, or price a revision to your software. Getting in the habit of doing the ‘unsafe’ thing every time you have the opportunity is the best way to learn to project — you get practice at seeing what’s working and what’s not.”

About the Author

Seth Godin is an author of nine bestsellers, including Permission Marketing: Turning Strangers Into Friends and Friends Into Customers, Unleashing the Ideavirus, and Meatball Sundae: Is Your Marketing Out of Sync?.

1. The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich, By Timothy Ferriss

2. Getting Things Done: The Art of Stress-Free Productivity, By David Allen

3. Good to Great: Why Some Companies Make the Leap... and Others Don't, By Jim Collins

4. The Official Guide for GMAT Review, 11th Edition

5. StrengthsFinder 2.0: A New and Upgraded Edition of the Online Test from Gallup's Now, Discover Your Strengths, By Tom Rath

6. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, By Steven D. Levitt and Stephen J. Dubner

7. The Answer: Grow Any Business, Achieve Financial Freedom, and Live an Extraordinary Life, By John Assaraf and Murray Smith

8. Predictably Irrational: The Hidden Forces That Shape Our Decisions, By Dan Ariely

9. The Tipping Point: How Little Things Can Make a Big Difference, By Malcolm Gladwell

10. The Black Swan: The Impact of the Highly Improbable, By Nassim Nicholas Taleb

By Mary Martinez
NAR Manager, Library & Information Services

No surprise, real estate sales books consistently rank among the top circulating titles in the NATIONAL ASSOCIATION OF REALTORS®’ Virtual Library eBooks Collection, a special library collection just for REALTORS® and association staff.

But, this digital collection offers something for every facet of life. NAR members have free access to 1,000 downloadable books, audio books, and videos on everything from managing a real estate career to learning Japanese ... from practicing time management to practicing yoga ... from using a digital camera to making real money in Second Life.

Among the most popular eBooks in May were those on foreclosed properties:
— Buying Real Estate Foreclosures
— How to Make Money on Foreclosures
— Make Money in Short-Sale Foreclosures

However, other eBooks making the top 10 list in May included audio books on learning Spanish — Instant Immersion Spanish and Dr. Blair's Spanish In No Time; eBooks on Internet

The Virtual Library eBooks Collection is available 24/7, provides all the necessary eReader software, and doesn't cost a dime — all you need is your NRDS number and the Quick Start Guide to take your reading digital.

Like what you see in the collection? Don't like what you see in the collection? Something missing from the collection? Share your feedback at eReviews.realtor.org, a companion Web site to the Virtual Library eBooks Collection that allows you to review eBooks and rate reviewed titles.

Send an e-mail to bookblog@realtors.org that includes the title of the real estate book and its author, along with your name, contact information, and why it's your favorite. Send us your photo, too, and we'll feature you on the blog!

1. Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits, By David Lindahl

2. FLIP: How to Find, Fix, and Sell Houses for Profit, By Rick Villani, Clay Davis

3. Confessions of a Real Estate Entrepreneur: What It Takes to Win in High-Stakes Commercial Real Estate, By James A. Randel

4. How To Become a Power Agent in Real Estate: A Top Industry Trainer Explains How to Double Your Income in 12 Months, By Darryl Davis

5. How to Open & Operate a Financially Successful Redesign, Redecorating, & Home Staging Business, By Mary Larsen and Teri B. Clark

6. The Complete Guide to Buying and Selling Apartment Buildings, By Steve Berges

7. How to Succeed in Commercial Real Estate, By John L. Bowman

8. Success as a Real Estate Agent For Dummies, By Dirk Zeller

9. Real Estate Rainmaker: Guide to Online Marketing, By Dan Gooder Richard

10. Five Minutes to a Great Real Estate Ad, By John D. Mayfield

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From the Book: 5 Ways to Save on Your Taxes

Kamoroff’s book features tax deductions available for small businesses, home businesses, self-employed individuals, and independent contractors. If you receive a 1099-MISC form, the IRS’s “miscellaneous income” form, this book is for you. Here are some ways he says you can save on next year’s taxes when it comes to business expenses.

1. Keep good records. Get a receipt for everything. Have a good filing system for these receipts and keep them for at least three years. Receipts are your best defense if the IRS ever audits you. No receipt? No worries. Make notes about your expenses, such as driving mileage, or keep a business diary on paper or electronically that logs these expenses. Good records kept throughout the year will be handy when you get ready to file. For example, a cell phone used 100 percent for business can be deducted fully but you need to keep detailed records on the cell phone usage, including time, place, and purpose of call. Here’s a shortcut: Cell phone companies can provide you with a detailed call-by-call list.

2. Educate yourself. You can’t deduct if you don’t know what to deduct. For example, did you know your NAR membership dues can be deducted? Dues and other expenses for business groups, professional organizations, and trade associations are deductible. Other business deductions: rental costs for billboards, car expenses due to business purposes, computers, decorating expenses, ATM fees, late charges (except for government penalties), your Web site maintenance and domain name fees, downloaded software, fees paid to rent mailing lists, coffee services, marketing expenses (except for entertainment, which is 50 percent deductible), office

3. Don’t forget the small expenses. Stamps, envelopes, and tolls can all eventually add up to a significant tax deduction. For example, your safe deposit box, magazines you subscribe to for your business, flowers for your office or customers, food and beverages for business-related events, electricity and other utilities, and mileage, which for a real estate professional can really add up!

4. Structure your transactions to your advantage. “You want to do your best to be sure every expense of your business becomes a tax deduction,” Kamoroff writes. You may be able to do that just by being strategic with your big office purchases. For example, you might want to postpone or accelerate purchases and other business expenses at the end of the year to increase or decrease your profit, which will affect how much you pay in taxes. If this year you’re bringing in a lower income, you might benefit from postponing expenses to next year. If you’re fortunate to be having a high-income year and could use more deductions, accelerating expenses may be a good strategy.

5. Turn back time. Maybe you’re kicking yourself for not taking advantage of past deductions that you were eligible for but you just didn’t know about at the time. Well, good news: You can go back and amend prior tax returns to claim a refund. Amended tax returns must be filed within three years of when you filed your original return, or within two years from the time you paid your tax. So, Kamoroff says, for 2007 tax returns filed and paid on time (April 15, 2008) -- or ahead of time -- you have until April 15, 2011 to amend the return. Get filing!

Sneak Peek

“Last year, America’s small businesses overpaid their income taxes by over two billion dollars, according to a C.P.A. study reported in Business 2000 Magazine. The overpayments were made because the businesses failed to take tax deductions they were legally entitled to take. Many of these businesses are still unaware of their errors. They overpaid their taxes and don’t even know it. The IRS is not going to help these businesses. The IRS will never tell you about a tax deduction you didn’t claim. That’s up to you. Whether you struggle with your own tax return, hire an accountant, or put your trust in a software program, the more you know about what’s deductible, the more you’ll save on your taxes. Your tax return lists only a handful of deductions, so it’s up to you to make sure you find and claim every one. It really is a treasure hunt.”

About the Author

Bernard B. Kamoroff is a Certified Public Accountant with more than 30 years of experience. He is the author of five business books, including The Small Business Operator: How to Start Your Own Business, Keep Your Books, Pay Your Taxes and Stay out of Trouble.